Acceptance and Support for Dynamic Currency Conversion Grows This time last year, we reported about the hidden charges on credit card bills accrued by credit card providers attributable to currency conversion while traveling abroad (see e-NewsFlash – Hospitality of 29 July 2002, the Feature Article “Traveling Abroad? – Watch Out for Hidden Charges on Your Credit Card Bill). The reason why we picked up on that subject was that Planet Payment introduced its software solution for Dynamic Currency Conversion (DCC) to the hospitality industry at HITEC 2002. And twelve months later, we talked again to the company at the show, as they had just announced the release of their next generation DCC service, designed to comply with newly issued Visa rules for DCC.

DCC is becoming such an important issue for the credit-card industry, merchants – in particular in the hospitality industry – and consumers alike that we decided on a follow-up article. But as it is also such a complex issue, we thought it might be useful to recap the concept and the way it works. Please contact us on crnews@netcomuk.co.uk if you missed the article last year and would like to read it now. Founded in 1999, privately-held Planet Payment has become one of the leaders in processing international and foreign currency credit card transactions on behalf of banks, merchants and cardholders using dynamic currency conversion technology. Planet Payment offers its services to the payment processing industry, including acquiring banks, transaction processors, gateway and point-of-sale solution providers. What is DCC all About? – The Key Facts Over the years, it has become common practice for banks that issue credit cards to charge a 2% fee (in some cases even 3%) on purchases made in foreign currencies in addition to the 1% that Visa and MasterCard have been charging since the 1980s for converting foreign currency. A DCC system allows a merchant to perform instant currency conversion at the point of sale to the cardholder’s currency. This means that, by applying dynamic currency conversion, Planet Payment’s system ‘short-circuits’ the currency conversion by the card association and issuing bank, which, therefore, can no longer charge the conversion fee as the conversion has already been done. Effectively, Planet Payment redirects these currency conversion fees to the merchant, so that the revenue is split between the merchant, the merchant’s credit-card processor and Planet Payment. Therefore, merchants will earn additional revenue in the region of about 1% on existing transactions involving a currency conversion. But DCC is not just the conversion of the transaction to the cardholder’s currency. A very important part of DCC is also maintaining the transaction in the merchant’s currency for the purposes of the merchant’s reporting and reconciliation. For example, a US merchant will not want to receive reporting in a foreign currency. An important part of what Planet Payment offers is the management of the transaction in both currencies, so that the merchant can keep all of its systems in its local currency. Credit card holders pay about the same amount of currency conversion fees with or without DCC. But they benefit in several ways from the new technology: 1. The DCC system allows for paying in their own countries’ currency while travelling. A traveller from Japan, for example, checking out at a hotel in New York, could pay his hotel bill in yen. He would be able to see the amount he had paid in yen including the conversion rate on his receipt, instead of waiting more than a month for his credit card statement. Planet Payment’s vision is that any cardholder will ultimately be able to travel the world and view all prices, and complete all transactions, in his/her local currency. This would be a big plus for business travellers as they wouldn’t have to wait for the credit card statements anymore before handing in their expenses. 2. With DCC the currency conversion charges are clearly stated on the customer receipt and the customer agrees to them with their signature. So far, Visa and MasterCard don’t list the charges of currency conversion on customers’ bills; most card issuing banks mention the fee only in the fine print of the cardholder agreements they send to card holders from time to time. But as this practice has now been brought to the attention of consumers, Visa and MasterCard as well as the card issuing banks have to deal with more and more complaints. 3. Some DCC services are designed around the value to the cardholder, and perform the currency conversion at a more favourable rate than that provided by the card provider. For example, according to Planet Payment, its FX Assured™ service performs the conversion at a rate that is guaranteed to cost the cardholder less than he would have paid the card provider. How Does Dynamic Currency Conversion Work? DCC software can be installed in a stand-alone POS terminal, ECR or PC-based point of sale system or it can be integrated into the platform of a multicurrency processor. Planet Payment’s DCC services are available through many leading payment system providers to the hospitality industry, including MICROS Systems, Hospitality Information Systems (HIS), and Shift4, among others.

The software recognises the currency of a cardholder’s home country by comparing the card number against a table of bank identification numbers stored in the terminal, at a payment gateway, or integrated into a processor’s platform.

When the currency of a particular credit card has been established, a foreign exchange conversion rate is downloaded to the point of sale. Cardholders are then given the option of concluding the transaction in their native currency or waiting for the conversion to be applied later by their card issuer. According to Nilson Report, a trade publication for the credit card industry, 90 per cent of cardholders choose to pay in their local currency up front. The Pressure on Credit-Card Companies is Mounting There are obvious reasons why Visa and Mastercard as well as the card issuing banks don’t like DCC; they lose enormous amounts of money. According to David Robertson, publisher of the Nilson Report, in 2002, Visa and Mastercard generated more than US$930 million in revenue from foreign currency exchange, while credit card issuer mark-ups raised fees of another US$2.3 billion. Visa has introduced strict operating regulations governing DCC. Cardholders have to be given a printed receipt containing amounts in both the merchant’s and their local currency, the exchange rate used, the symbols for both currencies, as well as text explaining that cardholders are being offered a choice and that their choice is final. Merchants can’t perform DCC without cardholder approval, and DCC receipt totals must match charges on a cardholder’s statement.

Planet Payment says that it wholly supports these disclosure obligations, and feels they should apply to anyone – merchant or issuer – performing currency conversion on a credit card transaction. Furthermore, these regulations, however strict for the merchant and issurer, can only be in the interest of the consumer. Over the past 12 months, merchants have been warming to the idea of earning additional revenue on currency conversion with DCC, and as international customers come to expect DCC as a personalised service, merchants can expect that DCC will become the standard. Planet Payment: www.planetpayment.com; Visa: www.visa.com; MasterCard: www.mastercard.com; MICROS Systems: www.micros.com; Hotel Information Systems: www.hotelinfosys.com; Shift4: www.shift4.com